HomeExploring the affordability of a home on a $70,000 annual salary in Canada involves several key factors. While your income plays a crucial role, other considerations — such as your down payment size, existing debt obligations, and credit rating — also influence your overall home affordability.
The 32/39 rule
The 32/39 rule is a guideline used to assess home affordability based on a household’s ability to manage debt. Financial institutions commonly apply this ratio when evaluating mortgage applications for homebuyers. Here’s how it works:
32: The front-end of the ratio or the "32" focuses on housing expenses which include mortgage payments, property taxes, and insurance. These costs should not exceed 32% of your gross monthly income.
39: The back-end of the ratio or the "39" focuses on all debt obligations such as credit card payments and car loans in addition to your monthly housing costs. These costs should not exceed 39% of your gross monthly income.
Let's breakdown how the 32/39 home affordability rule can be applied to a $70,000 salary in Canada.
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Monthly Salary
$70,000 annual salary
/ 12 months
= $5,833 per month
-
32% - Home costs should not exceed this amount
$5,833 per month
x 32.00% gross debt service ratio
= $1,867 per month
-
39% - Total debt should not exceed this amount
$5,833 per month
x 39.00% total debt service ratio
= $2,275 per month
For a salary of $70,000 in Canada the 32/39 rule provides guidance that total home costs should not exceed $1,867 per month and total debt costs should not exceed $2,275 per month. Sticking to these affordability limits will also increase chances of mortgage approval.
It's also crucial to consider the federal stress test when considering affordability. This stress test evaluates your ability to handle mortgage payments as interest rates increase.
How much mortgage can you afford with an $70K salary in Canada?
The 32/39 Rule is essential when determining how much mortgage you can qualify for. With a $70,000 salary, we want our total home expenses to stay below the calculated amount of $1,867. To achieve this, our monthly mortgage payment should be less than $1,867, leaving room for other home-related costs. Assuming a 25-year amortization period, a fixed annual mortgage rate of 5.50%, and a 20% down payment, the monthly payment on a $260,000 mortgage would be approximately $1,587. This leaves $280 per month for expenses like property taxes and heating.
Additional Resource: Mortgage Affordability Calculator to try out other variables.
How much house can you afford?
In Canada, with a $70,000 salary, you could likely afford a $325,000 home. This estimate considers both a $260,000 mortgage, which you could obtain, and a $65,000 down payment (equivalent to 20% of the purchase price). To further improve your home affordability, consider enhancing your credit rating to secure a better mortgage rate, reducing household debt, or continuing to save for a larger down payment.